Equitable Growth Steering Committee member Karen Dynan and company point out a big problem. Should we be trying to pay down our debt now in order to create "fiscal space"? Our should we take secular stagnation seriously, and not fear the possibilty of a sudden downward valuation of government debt that would take fiscal space away?: Karen Dynan, Jay Shambaugh, and Eduardo Porter: What Tools Does the U.S. Have to Combat the Next Recession?: "Today's lower equilibrium interest rates make it more likely that monetary policy would need to make use of unconventional tools to spur the economy. On the fiscal front, we have a much larger level of government debt relative to GDP than we did prior to the financial crisis. However, viewing this level of debt to GDP as a reason to restrain stimulus spending in case of a crisis could make the problem worse. Whether the government uses fiscal policy to stimulate the economy will depend more on political willingness, than on the actual limits on fiscal policy...
#shouldread #fiscalpolicy
